Monetary policy
The use by governmentof changes inthe supplyof money and interestrates to achieve desired economic policy objectives. They aim therefore to influence the level of economic activity. The government may want to use their monetary policy to either boost economic activity (if the economy is in a recession) or perhaps to reduce economic activity (if the economy is growing too fast, causing inflation). If they want to slow down the economy they may use contractionary (or deflationary) monetary policy. This is likely to mean:
1...increasing the level of interest rates
2...reducing the rate of growth of the money supply
On the other
hand if they want to boost the economy because it is in a downturn, they may choose to use expansionary (or reflationary) monetary policy. This would mean:
1...reducingthe level of interest rates
2...allowing therate of growthof the money supply to increase
